Could the courts reduce/eliminate the debt Colt owes to Sciens if it is demonstrated that Sciens looted (either legally or illegally) Colt, forcing it into its current situation?
This raises a number of key questions that - if it goes down this road - could really get the Colt bankruptcy may spiral out of control.
First, as to the question of whether a court could reduce or eiiminate debt. Bankruptcy
by its very definition an entity seeking to reduce or eliminate debt, because it is demonstrably unable to repay its debts. In a textbook process (and this Colt proceeding is not quite textbook already), all of the debtor's (Colt's) assets are measured and evaluated, and the assets are used to repay a portion of outstanding debt. BUT, for the sake of argument, if it was shown that the owners and or managers had badly misbehaved, the court would not see that as a reason to forgive debt (blank slate to start again). Rather, the court may be
less inclined to reduce or forgive debt.
So, as for an allegation of "looting." The question of whether the bondholders can argue that they have been defrauded has been in my mind for quite a while now. Colt has not produced audited financials since 2013, and the pressuring of the bondholders over the past year raises a question in my mind as to whether there may have been a violation of the Trust Indenture Act (at least three bondholders in other high profile bankruptcies have had some success if pressing their case citing breaches of the TIA).
So, I'll stop there, but you can see where this could escalate into a series of suits and countersuits, against companies and individuals.
This is why I am so reluctant to say "the name Colt will always survive." I can see this going south (even more than it is now) for any number of reasons.
The only light at the end that we've seen lately is the offer of the bondholders to jump back in and extend a loan to keep the company operating. The bondholders don't seem to want to blow up Colt, even though it is pretty unlikely they'll get their money back (at least not all of it). The secured creditors don't seem to want to blow up Colt.
But this case is like a hand grenade with a half dozen fingers holding the pin. All it takes is one to spasm ...